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Program: GM 2
Consumption Theory
Figure 1 Changes in Supply and Demand and Their Short-Run Impact on Market Equilibrium (The
Rationing Function of Price)
Supply increases as new sellers enter the market and original sellers increase production
capacity.
Supply decreases as less profitable firms or those experiencing losses exit the market or
decrease production capacity.
Demand increases as tastes and preferences of consumers eventually change in favor of
the product relative to substitutes.
Demand decreases as tastes and preferences of consumers eventually change away from
the product and toward the substitutes